The 7 Habits of Highly Effective Advertisers – Habit #5: Know How To Calculate A Return On Your Advertising Investment

I’d like to tell you a story about Bob, who owns a modest golf practice facility, commonly known as as a driving range, in Muncie, Indiana.

Muncie is a former industrial town, once home to bustling factories operated by General Motors and Borg Warner, but is now a college town, home to Ball State University, just an hour north of Indianapolis. 

At Bob’s you can hit golf balls at targets of varying distances, and chip and putt on his large outdoor practice green. The cold Indiana winters are no excuse to avoid practice because Bob has heated hitting bays, virtual golf simulators, and a massive undulating indoor putting green.  He has 3 certified PGA instructors on staff, grills a mean cheeseburger, and offers a variety of domestic and craft beers.

But Bob also has a marketing challenge, and that is how to reliably and profitably attract new customers.

He doesn’t have a big budget, just one (remote) location, and competes with several other facilities (and golf courses) who offer similar services and products.

Bob has tried all kinds of advertising in the past, in newspapers, community magazines, church bulletins, little league programs, billboards, park benches, local radio, and even took a crack at some Google and Facebook ads.

But nothing has worked, at least not reliably, and not profitably.

Where Should Bob Start?

The first thing Bob should do is pause. Stop everything.

Cancel all contracts and advertising spending. This will hurt some vendor’s feelings because Muncie is a smallish town, and everyone knows each other.  But the good news is, everyone will get over it.  The most important thing for Bob, and for everyone else who relies on him, is to stay in business, grow, and increase profitability.     

He should spend some reflective time away from the business, and brainstorm how he can position his business differently.

Bob needs to figure out what is unique about him and/or his business, and if he can’t figure it out – then he needs to create something unique. Then, forge this uniqueness into an offer (or bait) designed to lure customers, something he can use in any kind of media – postcards, billboards, letters, park benches, newspaper ads, cable TV ads, radio ads and more.  

And, since Bob already knows who he wants to target – golfers – it makes sense for him to appeal to ALL GOLFERS. From the youngsters with their first set of clubs to the single digit handicappers constantly honing their game.

In addition to golf, Bob also likes to fish, and he knows you can’t catch a fish without some good bait — fish love worms, people love free stuff and value.

So, after much thought and consideration, Bob comes up with these strong promotional offers:

At Bob’s Driving Range …. THIS MONTH ONLY …. all new customers get a free One-Hour golf lesson from a PGA Certified Instructor (A $100 FREE VALUE) …. there is absolutely no obligation we just want you to discover how rewarding the great game of golf can be …. visit Bobsgolf.com and check out our free report: The Top 5 Ways Anyone Can Improve Their Golf Game …. and if you like what you read …. schedule a free lesson …. ALL skill levels are welcome …. first time golfers, children, weekend duffers, and even skilled players …. You wouldn’t try learning how to swim without some help …. same goes for Golf …. so, give it a try you have nothing to lose …. AND …. I’ll throw in a free large bucket of balls so you can practice what you learned after the lesson!

He also came up with:

Hey You …. the guy on the couch ….YEAH you …. It may be cold outside but that’s no excuse not to practice …. Are you tired of never improving? …. And starting over from scratch every spring? …. Tired of never gaining any ground on your golf buddies? …. It’s summer ALL YEAR ROUND at Bob’s Driving Range in our heated indoor practice facility! …. And for a limited time …. you can purchase a VIP Practice Pass for 50% OFF! …. That’s right, I can only sell 100 of these passes each year or I’d go out of business …. It includes UNLIMITED PRACTICE TIME and UNLIMITED golf balls …. PLUS 5 free lessons with the PGA Professional of your choice …. and if you sign up before February 28th …. I’ll throw in Dozen New Titleist Golf Balls for FREE …. Hurry and get yours while they last …. Go to Bobsgolf.com and find out more AND check out…. also free of charge …. our tip sheet:  The Secret Practice Tip That Will Dramatically Improve Your Game.  

The only point of either offer is to generate a response.  Let me say it again because it’s foundation-ally important to get this right.  The only point of these offers is to generate a response.  So, if Bob has to give away free stuff to get attention, then he should! A gift with purchase, an overwhelming amount of value, an aggressive limited time discount, each can work.

Bob’s offer (or bait) should make people feel like they are taking advantage of him – and maybe they are – otherwise nobody will pay any attention.  People are subject to thousands of advertising messages per day, and the usual 10% off, or buy one get one free, no longer move the needle.    

More importantly, success is not determined solely on the number of purchases the offers create, the true metric of success is the total response.  

Every response becomes a lead, because every response captures a prospect’s contact information, allowing Bob to follow up later with additional sales efforts.    

In golf terms, this is very much about the long game, or the lifetime value of the customer. While the short game (the sale) is important, Bob can harvest more future profits from customers who aren’t ready to buy yet.  Growing and nurturing a database of interested customers is the least expensive and lowest hanging fruit for Bob to continue growing his business.

Another powerful component of Bob’s bait is it appeals to all golfers in a low threshold way. That’s why his website offers an abundance of truly helpful free information from his PGA instructors.  But nobody can access or download the information unless they provide their contact information. 

Bob will generate more response this way because people who aren’t ready to buy are reluctant, and not entirely ready, to talk to a salesperson, but will be comfortable absorbing the free information he provides.

And if Bob remains persistent in following up with these prospects – through emails, direct mail, events, newsletters etc. – a good percentage can be converted into buyers.

It may take a month, or years, but these efforts are less expensive and more productive than forever chasing new customers via cold paid advertising. 

How to Figure Out Return on Investment with Local Advertising

Now we’re going to talk about how Bob can pick the right kind of media. And much of it depends on the type of business he is operating.

Bob’s Driving Range is a niche retailer for golfers, and he can attract these golfers from all over the Muncie area.

Being a niche business greatly influences where he should invest his advertising dollars. If Bob operated an HVAC business, his advertising would need to appeal to a much broader audience; homeowners.

Even in a town the size of Muncie, there is an overwhelming number of places to advertise.  There is a local newspaper, several radio stations, cable TV, shared mail services like Money Mailer, billboards, buses, and park benches, and sponsorship opportunities with local high schools, the university, and charitable events.  

And (of course) there are some digital things Bob should do — like making sure he is listed in all search engine directories and maps in his category of business.  Search engines are the new phone book, and with the escalation of smart phone usage, search by phone will become a primary way people find his website, phone number, and location.

Assuming Bob has those fundamental search engine bases covered, he still needs to reach golfers, and believe it or not, in middle America like Muncie, where the population skews older, incomes are lower, and the trends of the bigger cities take years to penetrate: Traditional media is still the best answer for Bob to acquire new customers.

I’m also saying Bob should ignore the temptation to jump on the social media bandwagon.  In the end, it will save precious time, and even more precious advertising dollars.  Because successful execution in social media means he will have to create amusing and/or helpful, and do it frequently.

And then hope people find that content compelling enough watch it, while competing against a billion other videos and posts for attention.  However, Bob should encourage his PGA instructors to develop and post their own content.   

But Bob himself will focus on the UN-glamorous nuts and bolts of running a successful local business, and if done right, will make his customers happy enough they’ll voluntarily post their own content on social media. This is when social media works best in business; other people bragging about you.

The Local Newspaper

The local newspaper could be a smart choice. While the print circulation has dwindled the combined readership between print and online in Muncie is still decent, with about 50% market penetration, or say 35,000 readers per day (Muncie’s population is around 70,000 adults 18+).

Problem is — only a small portion of these readers are golfers.  Based on simple research he found on Google, Bob learns on average about 9% of adults are interested or active in golf.  It’s not exact, far from it, but it’s a good enough assumption to measure the return on a variety of advertising investments. 

So, let’s do some basic napkin math, but before we do, Bob establishes a few sales metrics.  He knows his average sale for new customers is about $100.  This includes lessons, a practice pass, and other merchandise.  And that the lifetime value of a customer is about $3,500.  

An effective newspaper advertising schedule in the local paper will reach about 35,000 readers (using a combination of online and print ads) costing around $2,100 per week.

Per our earlier research we assume 9% of those readers play golf, or roughly 3,150 (35,000 x .09 = 3,150) out of the 35,000 readers.   

We assume that only 1% of the 3,150 golfers reading the paper respond to Bob’s offer (31x responding) and half (16x) of those golfers make a purchase spending an average of $100 per person equaling $1,600 in sales. The other 15 downloaded information in exchange for providing their contact information. 

I should point out, a response rate of 1% is fairly conservative, and all response is subject to how strong an offer is and making sure your ad is repetitive enough so that your target audience actually notices it. 

This initial newspaper investment isn’t bad when you consider the lifetime value of each customer, but it’s also not great, and Bob can do better.  But it’s clear that the local newspaper (for a niche business) is not an affordable way of providing sustainable leads, his average sale is too low, and only 9% of the readership is into golf.  Newspaper is very much a mass medium, and I would anticipate response to Bob’s ads would decline each time he ran. 

Also please understand, with all of projections, I am making conservative assumptions about not only the response rates, but costs. Nothing is or will be exact, but simple napkin math is way more informative than doing no math at all, which is how most businesses run their marketing.

Local radio

Muncie has some good local radio stations, and luckily there are 2 stations reaching the majority of the population. Since these two stations have more reach than the newspaper, our pool of potential golfers will be larger.

Here’s some napkin math:

An effective advertising schedule of commercials featuring Bob’s offer will reach 75% of adults in Muncie (75% of the 70,000 total population equals 52,500 people) and cost about $2,500 per week. Per our earlier research we assume 9% of those listeners play golf, or roughly 4,725 golfers out of the 52,500 listening. 

We assume that 1% of our 4,725 golfer-listeners respond to Bob’s offer (47x total golfers responding) and half (24x) of those golfers make a purchase spending an average of $100 per person equaling $2,400 in sales. The rest (23x) respond to downloading the helpful information in exchange for their contact information. 

Not bad, but I hope you see a pattern forming. It will be tough for Bob to find long-term sustained success using mass media like local newspaper and radio. They’re reach and expense are more than a niche retailer like Bob needs. 

In fact, Bob would be lucky to recoup half of his investment in any mass media campaign. And sure, in the long run, if he converts enough leads into paying customers, the newspaper and radio campaigns may pay off.

However, just as in newspaper, I expect the effectiveness of Bob’s offers to wear off quickly in local radio, making future efforts surely unprofitable. For a niche retailer, mass media should be used semi-regularly and only for big retail events where higher sales volume can cover higher expenses. 

Bob should have a one or two big annual blowout sales (one before summer, and one at Christmas) where he could host manufacturers reps from major golf companies like Calloway, Taylor Made, Adidas, Titleist, and even hire a famous professional golfer to do demonstrations and give autographs.  A big semi-annual sale is capable of generating enough traffic and sales to justify the expense of mass media like radio and newspaper.

Shared Mail

Another option is SHARED direct mail, where the cost of the printing and postage is shared by a number of merchants advertising in the same envelope or package.

Bob could buy an ad in the local Money Mailer for about $500 per month and reach 30,000 homes with his coupon — of which 9% are golfers (or 2,700 households). Of those golfers, 1% respond to his ad (2,700 x .01) totaling 27 new customers. Of which, about half buy (14x), and half don’t (13x), and at his average sale of $100, his immediate gross sales are $1,400 on a $1000 investment.

This is actually worth doing more often. Bob should employ this tactic regularly if he continues to get this kind of response, and shared mail is an inexpensive place to test the power of his offers before investing elsewhere. 

Direct Mail

Now let’s consider direct mail, meaning Bob sends his own letters to a verified list of golfers, a list he finds online through a list broker.  Info USA is an excellent source of rentable databases for all kinds of demographics and targets. 

Bob’s initial research suggested about 9% of the 70,000 adults in Muncie are golfers, and when he talked to the mailing list broker, sure enough — they too had about 6,300 golfers (or 9% of the population) on a rent-able mailing list. 

By the time Bob pays for the list, and the printing, the stuffing of envelopes and the postage, the cost per letter will be around 40 cents per piece (conservatively), or a total cost per mailing of $2,500 (40 cents x 6300  pieces = $2520).

Let’s again assume Bob gets a 1% response, or 63 total responses (6,300 golfers mailed to x .01% response = 63 responses) with 32 buying immediately and 31 providing their contact information. If each new customer spends an average of $100, he will gross $3,000. Again, not bad.  But as an ongoing way of acquiring new customers and leads, it requires too much up-front cash, just like mass media, making it too risky for a small niche business. 

However, using direct mail to engage up sell existing customers (and leads) is an extremely effective, time-tested, proven marketing tactic.  Bob’s should cultivate his database of past customers, plus anyone who requested information. This list will be smaller and less expensive to market to. 

Systematic and timely outreach to his database will yield a higher response rate than the paltry 1% achieved marketing to strangers, leading to more predictable sales and growth. 

Local Cable TV

Another option is cable TV, and like Bob’s Driving Range, cable is a very niche business.

There are cable channels devoted to every conceivable hobby including cooking, history, tennis, basketball, nature, news, science, animals, football, soccer, home remodeling, and GOLF!

Cable television allows Bob to insert local commercials into their national programming like live PGA tour events, and because it’s such a small niche audience, the cost is startlingly low.

With help from the cable salesperson they help Bob produce two thirty second commercials featuring his offers for free.  Now, don’t let the idea of producing commercials seem intimidating, it shouldn’t be.

First off, a local business doesn’t need a slick looking commercial.  In fact, the more amateur it looks, the more it will stand out from the clutter and appeal to local residents.  Second, the most important thing (and hardest part) is writing the ad or offer, once the writing’s done then producing the ads, even a TV commercial, is relatively simple.  If needed, you can rely on the media company you’re buying from to help produce your ad.  But don’t ever rely on them to write your ad.    

Bob is able to buy 3 commercials per hour (a dominating presence) in all of the live coverage of PGA, LPGA and even the European PGA Tour events for about $1,000 per month.

Now for some napkin math:

In any given month, the Golf Channel reaches 80% of all golfers in Muncie (verified by research provided by our friendly cable salesperson). Since we confirmed there are roughly 6,300 golfers from our earlier direct mail campaign, 80% equates to 5,040 golfers tuning in on average to the golf channel each month (6,300 x .80 = 5,040). 

If Bob gets a 1% response from his commercials that equals 50 responses every month, of which 25x will spend an average of $100 grossing $2,500 worth of lessons, balls, merchandise and snacks. The other 25 will be added to the database and marketed to in the future.   

That’s 50 responses, 25 new customers, $2,500 in gross sales, and 25 leads for a cost of $1,000.  Bob only needs to keep his offers fresh, seasonal, relevant, LOADED with value, and he can profitably run on the golf channel virtually all year. 

Sports Sponsorship

The biggest economic force in Muncie is Ball State University, one of six state supported colleges in Indiana.  Ball State has over 20,000 + students and 3,000 + faculty on campus and the only Division One athletics program in the region, attracting world-class athletes, students, parents, the media, visiting teams and coaches, and fans from all over the country to Muncie.  No other entity, not even the government, has a greater economic impact on the region where Bob conducts business 

So, as a business owner, Bob should embrace this community, and as an enterprising entrepreneur of a golf practice facility, he could seek out an alliance with the Ball State Men’s and Women’s golf teams.  He could work out a sponsorship arrangement where the golf team practices year-round at his facility at no cost.  In exchange Bob gets to say he’s the official golf practice facility of Ball State Athletics.  He should strike up similar partnerships with local high school golf teams. 

The benefits of these partnerships are numerous.  For one, Bob can use these designations in his marketing to instantly distinguish himself from competitors.  Secondly, he will endear his business to the thousands of people who attend, graduate or work at the university and high schools.    

And finally, nothing is more credible for amateur golfers than seeing elite NCAA athletes, some who could become future PGA pros, practicing as a team, their golf bags emblazoned with Ball State Cardinal logos, only at Bob’s Driving Range. 

In Summary

In summary, this process of doing simple napkin math and analyzing potential return on investment led Bob to conclude the following:

  1. He runs a niche business appealing only to golfers
  2. Digital success is partly defined by having a good website with helpful content used primarily as a way of capturing leads and contact information
  3. Social media is largely ignored to conserve time and budget for better ROI initiatives
  4. Search marketing success means Bob completed every online business listing, mappings and location services tied to Google, Bing, and Yahoo – meaning he will appear organically in all search engine inquiries about anything golf related in Muncie, IN.   
  5. The foundation of Bob’s growth depends on crafting compelling promotional offers that cannot be ignored by any golfer
  6. As a niche retailer, mass media like newspaper and radio are best for big sales
  7. Shared mail is an inexpensive way of testing offers on the public
  8. Direct mail, along with email marketing, become foundational marketing tactics with a heightened appreciation and focus on retaining and selling to Bob’s existing, and growing database of customers and leads
  9. Luckily for Bob, there is an entire TV channel devoted to the hobby of golf, and as long as it remains affordable, becomes a staple for acquiring new customers

This process, along with the conclusions reached for Bob’s Driving Range, will no doubt be different for other types of businesses, but the formula for estimating a return on your marketing investment, the importance of creating compelling offers, and nurturing the not-yet ready buyers are evergreen strategies that can be employed in any kind of business.